The New Overtime Rule Will Have a Major Impact on Your Community Association. Are You Prepared?

UPDATE 12/14/2016: The Federal Overtime Rule detailed in the following article was delayed and will no longer take effect. For more details, click here.

Does your community employ managers, recreational employees or maintenance personnel?

If so, you will be impacted by the new FLSA changes rolling out on December 1st, 2016.

As a board member, it's critical that you ensure your community’s compliance with the new overtime rule that goes into effect from the U.S. Department of Labor on December 1, 2016. Read below to learn more about the new overtime rule and to better understand your options before you miss the deadline and face potential penalties.

What is the new overtime rule?

Earlier this year, the U.S. Department of Labor released an update to the overtime rule that determines which employees are eligible for overtime. Beginning December 1 of this year, in order to be exempt from overtime (or salaried), an employee must make greater than $47,476.00. Otherwise, that employee will need to track his/her time and be paid overtime for any hours worked weekly in excess of 40.

To better understand the impact, it’s helpful to understand how the current overtime regulations work.

Currently, in order to be exempt from overtime pay, an employee must be paid a salary, the salary must be at least $23,400, and the employee must perform certain duties. These criteria are generally referred to as the “salary test” and the “duties test.” The updated tests are listed in the chart below.

(Click image to enlarge.)

To be exempt from overtime pay, a given employee must pass both of these tests AND now be paid more than the new threshold of $47,476. By increasing the salary threshold, the proposed rule would increase the number of employees eligible for overtime time pay for work performed beyond 40 hours per week.

According to the U.S. Bureau of Labor Statistics, the mean community association manager salary is approximately $55,000 per year. That means that about a third of all community managers will likely be eligible for overtime pay under the proposed rule change. For community associations and management companies, the new regulations present a big challenge, mainly because association and management fees have remained steady or even declined over the past few years. And, unlike other governmental regulations, the size of your business does not allow you to be exempt from this rule.

How does this impact my community?

Businesses and other entities have a few options by which to comply with this new regulation.

Evaluate the employee’s role and increase their salary to the threshold.

Keep the employee at their current wage, which makes them hourly, and therefore eligible for overtime.

That said, it’s not as simple as keeping the employee at their current wage and making them hourly. As professionals, those who manage your community on your behalf must be salaried due to their management activities and fiduciary responsibility, which means for your community managers and other professional positions, you are possibly facing a steep increase in your costs.

What are my next steps?

Begin by assessing your current staff and working with your board to determine the increase in cost you are facing — both from increasing salaries and from additional overtime. Then, determine if you will need to offset those costs by an increase your residents’ assessments or by reducing some of your current expenses. Once you have created your plan, we recommend you meet individually with each of your employees to explain any changes to their role and provide training on your time-keeping systems.

Where can I get more information or help with this issue?

At Associa, we manage thousands of communities facing this exact challenge. As your partner, we work to help you navigate these complexities and ensure they are compliant with this and other governmental issues. We would be happy to talk more with you about this challenge, or any other challenge you’re facing in your community.

*This post is not intended to provide employment or legal advice. Please consult with your association’s attorney if necessary.